Economic Growth - 3 (ch.7-8)

Assume that a war reduces a country's labor force but does not directly affect its capital stock. If the economy was in a steady state before the war and the saving rate does not change after the war, then, over time, capital per worker will _____ and output per worker will grow _____ than it did before the war. a. decline; faster b.increase: faster c. decline; more slowly d. increase; more slowly

c

Assume that two countries both have the per-worker production function y = k^-1/2, neither has population growth or technological progress, depreciation is 5 percent of capital in both countries, and country A saves 10 percent of output whereas country B saves 20 percent. If A starts out with a capital-labor ratio of 4 and B starts out with a capital-labor ratio of 2, in the long run: a. both A and B will have capital-labor ratios of 4 b. both A and B will have capital-labor ratios of 16 с. A's capital-labor ratio will be 4 whereas B's will be 16 d. A's capital-labor ratio will be 16 whereas B's will be 4

c

Assume two economies are identical in every way except that one has a higher population growth rate. According to the Solow growth model, in the steady state the country with the higher population growth rate will have a _____ level of total output and _____ rate of growth of output per worker as/than the country with the lower population growth rate: a. higher; the same b. higher, a higher c. lower; the same d. lower, a lower

c

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f(k)) may be expressed as: a. s+f(k) b. s-f(k) c. sf(k) d. s/f(k)

c

The Golden Rule level of the steady-state capital stock: a. will be reached automatically if the saving rate remains constant over a long period of time b. will be reached automatically if each person saves enough to provide for his or her retirement c. implies a choice of a particular saving rate d. should be avoided by an enlightened government

c

The Solow growth model describes: a. how output is determined at a point in time b. how output is determined with fixed amounts of capital and labor c. how saving, population growth, and technological change affect output over time d. the static allocation, production, and distribution of the economy's output

c

The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the: a. level of output b. labor force c. saving rate d. capital elasticity in the production function

c

An increase in the saving rate starting from a steady state with less capital than the Golden Rule causes investment to _____ in the transition to the new steady state: a. increase b. decrease с. first increase, then decrease d. first decrease, then increase

a

Assume that a war reduces a country's labor force but does not directly affect its capital stock. Then the immediate impact will be that: a. total output will fall, but output per worker will rise b. total output will rise, but output per worker will fall c. both total output and output per worker will fall d. both total output and output per worker will rise

a

If a larger share of national output is devoted to investment, starting from an initial steady-state capital stock below the Golden Rule level, then productivity growth will: a. increase in the short run but not in the long run b.increase in the long run but not in the short run c. increase in both the short run and the long run d. not increase in either the short run or the long run

a

If an economy is in a steady state with a saving rate below the Golden Rule level, efforts to increase the saving rate result in: a. both higher per-capita output and higher per-capita depreciation, but the increase in per capita output would be greater b. both higher per-capita output and higher per-capita depreciation, but the increase in per-capita depreciation would be greater c. higher per-capita output and lower per-capita depreciation d. lower per-capita output and higher per-capita depreciation

a

If the marginal product of capital net of depreciation equals 8 percent, the rate of growth of population equals 2 percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock _____ the rate in this economy must be_____: a. saving; increased. b. population growth; decreased c. depreciation; decreased d. total output growth; decreased

a

If the production function exhibits increasing returns to scale in the steady state, an increase in the rate of growth of population would lead to: a. growth in total output and growth in output per worker b. growth in total output but no growth in output per worker c. growth in total output but a decrease in output per worker d. no growth in total output or in output per worker

a

In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state output per effective worker grows at a _____percent rate: a. 0 b. 2 c. 3 d. 5

a

In a steady-state economy with a saving rate s, population growth n, and labor-augmenting technological progress g, the formula for the steady-state ratio of capital per effective worker (k*), in terms of output per effective worker (f(k*)), is (denoting the depreciation rate by 𝛅): a. sf(k)/(𝛅+n+g) b. s/(f(k))/(𝛅+n+g) c. f(k)/((s)(𝛅+n+g)) d. (s-f(k))/(𝛅+n+g)

a

In a steady-state economy with population growth n and labor-augmenting technological progress g, persistent increases in standard of living are possible because the: a. capital stock grows faster than does the labor force b. capital stock grows faster than does the number of effective workers c. capital stock grows faster than does depreciation d. saving rate constantly increases

a

In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, then capital grows at rate _____ and output grows at rate ______: a. n;n b. n;0 c. 0;0 d. 0;n

a

In the Solow growth model, if investment exceeds depreciation, the capital stock will _____ and output will _____ until the steady state is attained: a. increase; increase b. increase; decrease c. decrease; decrease d. decrease; increase

a

In the Solow growth model, increases in capital _____ output and _____ the amount of output used to replace depreciating capital: a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease

a

In the Solow model with technological progress, the steady-state growth rate of capital per effective worker is: a. 0 b. g с. n d. n+g

a

In the Solow model with technological progress, the steady-state growth rate of output per effective worker is: a. 0 b. g c. n d. n+g

a

In the United States recent economic history: a. increasing capital formation has been a high priority of economic policy b. economic policy has not been concerned with increasing capital formation c. economic policy has been more concerned with increasing labor skills than with increasing capital formation d. economic policymakers have felt that too much attention has been paid to increasing capital formation

a

Suppose an economy is initially in a steady state with capital per worker exceeding the Golden Rule level. If the saving rate falls to a rate consistent with the Golden Rule, then in the transition to the new steady state consumption per worker will: a. always exceed the initial level b. first fail below then rise above the initial level c. first rise above then fall below the initial level d. always be lower than the initial level

a

The consumption function in the Solow model assumes that society saves a: a. constant proportion of income b. smaller proportion of income as it becomes richer c. larger proportion of income as it becomes richer d. larger proportion of income when the interest rate is higher

a

The efficiency of labor is a term that does nor reflect the: a. high output that comes from labor cooperating with a large amount of capital b. health of the labor force c. education of the labor force d. skills of the labor force acquired through on-the-job training

a

The steady-state level of capital occurs when the change in the capital stock ( delta k) equals: a. 0 b. the saving rate c. the depreciation rate d. the population growth rate

a

With population growth at rate n and labor-augmenting technological progress at rate g. the Golden Rule steady state requires that the marginal product of capital (MPK): a. net of depreciation be equal to n + g b. net of depreciation be equal to the depreciation rate plus a + g c. plus n be equal to the depreciation rate plus g d. plus g be equal to the depreciation rate plus n

a

With population growth at rate n but no technological change, the Golden Rule steady state may be achieved by equating the marginal product of capital (MPK): a. net of depreciation 10 n b. to n c. net of depreciation to the depreciation rate plus n d. to the depreciation rate

a

A possible externality associated with the process of accumulating new capital is that: a. a reduction in labor productivity may occur b. new production processes may be devised c. old capital may be made more productive d. the government may need to adopt an industrial policy

b

A reduction in the saving rate starting from a steady state with more capital than the Golden Rule causes investment to _____ in the transition to the new steady state: a. increase b. decrease c. first increase, then decrease d. first decrease, then increase

b

An increase in the rate of population growth with no change in the saving rate: a. increases the steady-state level of capital per worker b. decreases the steady-state level of capital per worker c. does not affect the steady-state level of capital per worker. d. decreases the rate of output growth in the short run.

b

Analysis of population growth around the world concludes that countries with high population growth tend to: a. have high income per worker b. have a lower level of income per worker than other parts of the world с. have the same standard of living as other parts of the world d. tend to be the high-income-producing nations of the world

b

Economic research shows that _____ in explaining international differences in living standards: a. physical capital is more important than is human capital b. human capital is at least as important as is physical capital c. human capital is much more important than is physical capital d. infrastructure is the most important factor

b

Examination of recent data for many countries shows that countries with high saving rates generally have high levels of output per person because: a. high saving rates mean permanently higher growth rates of output b. high saving rates lead to high levels of capital per worker c. countries with high levels of output per worker can afford to save a lot d. countries with large amounts of natural resources have both high output levels and high saving rates

b

If Y= K^0.3L0.7, then the per-worker production function is: a. Y = F(K/L) b. Y/L = (K/L)^0.3 c. Y/L = (K/L)^0.5 d. Y/L = (K/L)^0.7

b

If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts output will grow and that the new steady state will approach: a. a higher output level than before b. the same output level as before c. a lower output level than before d. the Golden Rule output level

b

If an cconomy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate: a. the economy is following the Golden Rule b. steady-state consumption per worker would be higher in a steady state with a lower saving rate. c. steady-state consumption per worker would be higher in a steady state with a higher saving rate d. the depreciation rate should be decreased to achieve the Golden Rule level of consumption per worker

b

If an economy moves from a steady state with positive population growth to a zero population growth rate, then in the new steady state total output growth will be _____ and growth of output per person will be _____: a. lower; lower b. lower; the same as it was before c. higher; higher than it was before d. higher; lower

b

If an economy with no population growth or technological change has a steady-state MPK of 0.125, a depreciation rate of 0.1, and a saving rate of 0.225, then the steady-state capital stock: a. is greater than the Golden Rule level b. is less than the Golden Rule level c. equals the Golden Rule level d. could be either above or below the Golden Rule level

b

If the per-worker production function is given by y=k^-1/2, the saving ratio is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of output per worker (v) is: a. 1 b. 2 c. 3 d. 4

b

If y = k^-1/2, the country saves 10 percent of its output each year, and the steady-state level of capital per worker is 4, then the steady-state levels of output per worker and consumption per worker are: a. 2 and 1 6, respectively b. 2 and 1.8, respectively с. 4 and 3.2, respectively d. 4 and 3.6, respectively

b

In the Solow growth model of Chapter 7, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals: a. sy b. (l-s)y c. (l+s)y d. (l-s)y-i

b

In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, total output grows at rate _____ and output per workers grows at rate _____: a. nn b. n;0 c. 0;0 d. 0; n

b

In the Solow model with technological progress, the steady-state growth rate of output per (actual) worker is: a. 0 b. g c. n d. n+g

b

Other things being equal, all of the following government policies are likely to increase national saving except: a. decreasing taxes on savings accounts b. running a budget deficit c. running a budget surplus d. retiring part of the national debt

b

Starting from a steady-state situation, if the saving rate increases, the rate of growth of capital per worker will: a. increase and continue to increase unabated b. increase and then decrease c. decrease and then increase d. decrease and continue to decrease unabated

b

Suppose an economy is mitially in a steady state with capital per worker below the Golden Rule level. If the saving rate increases to a rate consistent with the Golden Rule, then in the transition to the new steady state consumption per worker will: a. always exceed the initial level b. first fall below then rise above the initial level c. first rise above then fall below the initial level d. always be lower than the initial level

b

The current U.S. Social Security system is widely thought to _____ private saving because it: a. increase; increases incentives to save for retirement b. decrease; decreases incentives to save for retirement c. decrease; is fully offset by private saving d. increase; is fully offset by private saving

b

The rate of labor-augmenting technological progress (g) is the growth rate of: a. labor b.the efficiency of labor c. capital d. output

b

Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker: a. more in Highland b. more in Lowland c. by the same amount in Highland and Lowland d. in Highland, but not in Lowland

b

Unlike the long-run classical model in Chapter 3, the Solow growth model: a. a assumes that the factors of production and technology are the sources of the economy's output b. describes changes in the economy over time c. is static d. assumes that the supply of goods determines how much output is produced

b

When an economy begins above the Golden Rule, reaching the Golden Rule: a. produces lower consumption at all times in the future b. produces higher consumption at all times in the future c. requires initially reducing consumption to increase consumption in the future d. requires initially increasing consumption to decrease consumption in the future

b

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the: a. graph is a straight line b. slope of the line eventually gets flatter and flatter c. slope of the line eventually becomes negative d. slope of the line eventually becomes steeper and steeper

b

Assume two economies are identical in every way except that one has a higher saving rate. According to the Solow growth model, in the steady state the country with the higher saving rate will have _____ level of total output and _____ rate of growth of output per worker as/than the country with the lower saving rate: a. the same; the same b. the same; a higher c. a higher, the same d. a higher, a higher

c

If a larger share of national output is devoted to investment, then living standards will: a. always decline in the short run but rise in the long run b. always rise in both the short and long runs c. decline in the short run and may not rise in the long run d. rise in the short run but may not rise in the long run

c

If an economy with no population growth or technological change has a steady-state MPK of 0.1, a depreciation rate of 0.1, and a saving rate of 0.2, then the steady-state capital stock: a. is greater than the Golden Rule level b. is less than the Golden Rule level c. equals the Golden Rule level d. could be either above or below the Golden Rule level

c

If capital lasts an average of 25 years, the depreciation rate is _____ percent per year: a. 25 b. 5 c. 4 d. 2.5

c

If the U.S. production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the Golden Rule steady-state capital-output ratio is 4.29, to reach the Golden Rule steady state, the saving rate must be: a. 17.5 percent b. 25 percent c. 30 percent d. 42.9 percent

c

If the labor force is growing at a 3-percent rate and the efficiency of a unit of labor is growing at a 2-percent rate, then the number of effective workers is growing at a rate of: a. 2 percent b. 3 percent c. 5 percent d. 6 percent

c

If the national saving rate increases, the: a. economy will grow at a faster rate forever b. capital-labor ratio will increase forever с. economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached d. capital-labor ratio will eventually decline

c

If the per-worker production function is given by y=k^-1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: a. 1 b. 2 c. 4 d. 9

c

If the per-worker production function is given by y=k^-1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of output per worker (y) is: a. 1 b. 2 c. 3 d. 4

c

If the production function exhibits decreasing returns to scale in the steady state, an increase in the rate of population would lead to: a. growth in total output and growth in output per worker b. growth in total output but no growth in output per worker c. growth in total output but a decrease in output per worker d. no growth in total output or in output per worker

c

In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state output per worker grows at a _____ percent rate: а. 0 b. 2 c. 3 d. 5

c

In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of: a. labor equals the marginal product of capital b. labor equals the depreciation rate c. capital equals the depreciation rate d. capital equals zero

c

In the Solow growth model of Chapter 7, for any given capital stock, the _____ determines how much output the economy produces and the _____ determines the allocation of output between consumption and investment: a. saving rate; production function b. depreciation rate; population growth rate c. production function; saving rate d. population growth rate; saving rate

c

In the Solow growth model of Chapter 7, the demand for goods equals investment: a. minus depreciation b. plus saving c. plus consumption d. plus depreciation

c

In the Solow growth model of an economy with population growth but no technological change, the break-even level of investment must do all of the following except: a. offset the depreciation of existing capital b. provide capital for new workers c. equal the marginal productivity of capital (MPK) d. keep the level of capital per worker constant

c

In the Solow growth model, if investment is less than depreciation, the capital stock will _____ and output will _____ until the steady state is attained: a. increase; increase b. increase; decrease c. decrease; decrease d. decrease; increase

c

In the Solow model, it is assumed that a(n) _____ fraction of capital wears out as the capital-labor ratio increases: a. smaller b. larger c. constant d. increasing

c

In the steady state, the capital stock does not change because investment equals: a. output per worker b. the marginal product of capital c. depreciation d. consumption

c

The Solow model with population growth but no technological change cannot explain persistent growth in standards of living because: a. total output does not grow b. depreciation grows faster than output c. output, capital, and population all grow at the same rate in the steady state d. capital and population grow, but output does not keep up

c

The analysis in Chapter 8 of the current capital stock in the United States versus the Golden Rule level of capital stock shows that the capital stock in the United States is: a. well above the Golden Rule level b. about equal to the Golden Rule level с. well below the Golden Rule level d. slightly above the Golden Rule level

c

The efficiency of labor: a. is the marginal product of labor b. is the rate of growth of the labor force c. includes the knowledge, health, and skills of labor d. equals output per worker

c

The number of effective workers takes into account the number of workers and the: a. amount of capital available to each worker b. rate of growth of the number of workers с. efficiency of each worker d. saving rate of each worker

c

The production function y = f(k) means: a. labor is not a factor of production b. output per worker is a function of labor productivity c. output per worker is a function of capital per worker d. the production function exhibits increasing returns to scale

c

To determine whether an economy is operating at its Golden Rule level of capital stock, a policymaker must determine the steady-state saving rate that produces the: a. largest MPK b. smallest depreciation rate c. largest consumption per worker d. largest output per worker

c

When an economy begins below the Golden Rule, reaching the Golden Rule: a. produces lower consumption at all times in the future b. produces higher consumption at all times in the future c. requires initially reducing consumption to increase consumption in the future d. requires initially increasing consumption to decrease consumption in the future

c

_____ causes the capital stock to rise, while _____ cause the capital stock to fall: a. Inflation; deflation b. Interest rates; the discount rate c. Investment; depreciation d. International trade; depressions

c

A higher saving rate leads to a: a. higher rate of economic growth in both the short run and the long run b. higher rate of economic growth only in the long run c. higher rate of economic growth in the short run but a decline in the long run d. large capital stock and a high level of output in the long run

d

According to the Solow model, persistently rising living standards can only be explained by: a. population growth b. capital accumulation c. saving rates d. technological progress

d

Among the four countries the United States, the United Kingdom, Germany, and Japan-the one that experienced the most rapid growth rate of output per person between 1948 and 1972 was: a. the United States b. the United Kingdom c. Germany d. Japan

d

An economy in the steady state will have: a. investment exceeding depreciation b.no depreciation c. saving equal to consumption d. no change in the capital stock

d

If all wage income is consumed, all capital income is saved, and all factors of production earn their marginal products, then: a. the economy will reach a steady-state level of capital stock below the Golden Rule level b. the economy will reach a steady-state level of capital stock above the Golden Rule level c. wherever the economy starts out, it will not grow d. wherever the economy starts out, it will reach a steady-state level of capital stock equal to the Golden Rule level

d

If an economy is in a steady state with no population growth or technological change and the capital stock is above the Golden Rule level and the saving rate falls: a. output, consumption, investment, and depreciation will all decrease b. output and investment will decrease, and consumption and depreciation will increase c. output and investment will decrease, and consumption and depreciation will increase and then decrease but finally approach levels above their initial state d. output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state

d

If an economy is in a steady state with no population growth or technological change and the capital stock is below the Golden Rule level: a. a policymaker should definitely take all possible steps to increase the saving rate b. if the saving rate is increased, output and consumption per capita will both rise, both in the short and long runs c. if the saving rate is increased, output per capita will at first decline and then rise above its initial level and consumption per capita will rise both in the short and long runs d. if the saving rate is increased, output per capita will rise and consumption per capita will first decline and then rise above its initial level

d

If the per-worker production function is given by y=k^-1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: a. 1 b. 2 с. 4 d. 9

d

If y = k^-1/2, there is no population growth or technological progress, 5 percent of capital depreciates each year, and a country saves 20 percent of output each year, then the steady-state level of capital per worker is: a. 2 b. 4 c. 8 d. 16

d

In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state total output grows at a _____ percent rate: a. 0 b. 2 c. 3 d. 5

d

In the Solow growth model of Chapter 7, investment equals: a. output b. consumption с. the marginal product of capital d. saving

d

In the Solow growth model of Chapter 7, the economy ends up with a steady-state level of capital: a. only if it starts from a level of capital below the steady-state level b. only it it starts from a level of capital above the steady-state level c. only if it starts from a steady-state level of capital d. regardless of the starting level of capital

d

In the Solow growth model with population growth and technological change, the break-even level of investment must cover: a. depreciating capital b. depreciating capital and capital for new workers c. depreciating capital and capital for new effective workers d. depreciating capital, capital for new workers, and capital for new effective workers

d

In the Solow growth model, the assumption of constant returns to scale means that: a. all economies have the same amount of capital per worker b. the steady-state level of output is constant regardless of the number of workers c. the saving rate equals the constant rate of depreciation d. the number of workers in an economy does not affect the relationship between output per worker and capital per worker

d

In the Solow model with technological change, the Golden Rule level of capital is the steady state that maximizes: a. output per worker b. output per effective worker c. consumption per worker d. consumption per effective worker

d

In the Solow model with technological progress, the steady-state growth rate of total output is: a. 0 b. g с. n d. n+g

d

The Golden Rule level of capital accumulation is the steady state with the highest level of: a. output per worker b. capital per worker c. savings per worker d. consumption per worker

d

The current U.S. Social Security system is best described as: a. fully funded b. privatized c. endogenous d. pay-as-you-go

d

The formula for the steady-state ratio of capital to labor (k*) with population growth at rate n but no technological change, where s is the saving rate, is s: а. divided by the sum of the depreciation rate plus n b. multiplied by the sum of the depreciation rate plus n divided by the product of f(k*) and the sum of the depreciation rate plus n d. multiplied by f(k*) divided by the sum of the depreciation rate plus n

d

The formula for the steady-state ratio of capital to labor (k*), with no population growth or technological change, is s: a. divided by the depreciation rate b. multiplied by the depreciation rate c. divided by the product of f(k*) and the depreciation rate d. multiplied by f(k*) divided by the depreciation rated

d

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the line denotes: a. output per worker b. output per unit of capital c. the marginal product of labor d. the marginal product of capital

d